How Does Suicide Affect Life Insurance?

The purpose of a life insurance policy is to ensure that a policy’s beneficiaries usually family and relatives receive appropriate financial arrangements in
case the insured dies.

This is usually interpreted to mean accidental or
natural death.Suicide is generally considered one of the options, but it is
clear that the potential beneficiaries will be left struggling financially if the policy-holder takes his or her own life as they would be death
through natural causes.

However, there are ways that exist in life insurance
policies to ensure that individuals are protected in case of a tragic suicide.
There should be ways that will protect
businesses of life insurance policy.

Life insurance policies contain a suicide clause –
sometimes called an incontestable clause ,that declares what will become of the policy in the event of
the holder taking his or her own life.
It is a common practice in such clauses as it’s considered the moment of
death which clarifies that if an insured person takes his or her life, within two years of the life insurance
contract, no benefits will be payable in
such situation. However, due to the fact that a number of premium has be paid on the policy, they will be reimbursed to
the beneficiaries. In most cases, some
sort of payment will be made if a suicide occurs after two years or the period
mentioned in the suicide clause ,even if it was not all a designated beneficiaries.

The suicide clause gives beneficiaries a clear idea
of ​​what the restrictions will put on their likelihood of receiving payment of
life insurance, but it is also there to protect the life insurance company’s
adverse selection, the practice of obtaining policy deliberately with the
intention of planning his or her death and allowing a beneficiary to collect
money.

Adverse selection is also used to refer to the
tendency of these people who have high-risk lifestyles, chronic health problems
or who are in dangerous or unhealthy occupations , such as those underground or
in a war zone , to achieve significant levels of life insurance. In an attempt to mitigating the financial consequences of these actions,
the life insurance companies increase premiums and provide limited coverage
for these type of people.